GMAT Essays (AWA)

The following memo was circulated by the management team of a retail company:

"We are very pleased to announce the relocation of our inventory, which had been located in four different warehouses throughout the country, to a single new warehouse near Company headquarters in Boston. This consolidated location will cut the company's expenses for warehouse rent in half. As a result we expect our monthly profitability to go up by this amount.

Discuss how well reasoned etc.


In the argument above, the author concludes that a retail company's monthly profitability will increase due to consolidation of the location of its inventory.It assumes that rental expenses is the only factor that affects the costs of a firm, and the revenue generated by the company remains constant. This assumption has no premise in the argument. Furthermore the author claims that the profitability will go up by the exact amount saved by paying rent for just one warehouse instead of four. Although there is merit in the author's conclusion, the claim that the profitability will increase by an exact amount is not supported by sufficient evidence. Therefore, the argument as it stands is unconvincing.
Firstly, the author assumes that only rent on the warehouse affects the cost of the firm. Even if this claim has merit, the change in location of warehouses may add other costs to the company. For example, it might be that having warehouses spread out in different locations reduced the transportation and delivery costs. Consolidating all inventory in just one location might actually increase the company's cost to transport and deliver goods over an above the decrease in rent, thus infact raising costs higher than before and decreasing profitability. Since the author provides no evidence to show that all other costs to the firm also remain constant, this argument's assumption is not well reasoned.
Secondly the author assumes that profitability is dependent only on the cost of the company. Profitability is equal to the difference between revenue and costs. As such, even if the author's claim that the cost will decrease due to decrease in rent, has some merit, it fails to take into consideration that the revenue of the company might also change. Since no information is provided about revenue the author's conclusion remains incomplete.
Finally, the argument concludes that the profitability of the company will go up by an exact amount. As illustrated above, without any information about the revenues and other costs of the company, it cannot be determined if the consolidation of the warehouses will not affect other costs and revenues of the firm, and without such evidence, this conclusion is unsubstantiated and flawed.
In conclusion, for this argument to be well reasoned and complete the company must provide more information about its revenue and cost elements, besides the rental cost of warehouses. Without this, the argument remains flawed.

Good structure and I think it's easily a 5.

I am probably nit picking but your 3rd objection to the argument) is a combination of first 2. It feels a bit repetitive. I have tried thinking of other possible criticisms but I think it really boils down to the fact that the management has failed to take into account possible variations in revenues and other cost elements. You have covered these in first 3 paragraphs.

Cheers